In a nutshell, Greece has run up gov't debt levels that exceed 100% of their GDP. This has been accomplished mainly by allowing gov't employees to become 40% of the Greek economy, by allowing union wages and benefits to rise to exorbitant levels, by allowing gov't funded social welfare / retirement benefits to become incredibly generous, and by allowing rich Greeks with smart accountants and international connections to avoid paying taxes.
As a result, Greece is no longer able to borrow yet more money with which to continue paying those gov't employees and social welfare / retirement benefits. Greece has approached both the European Union and the IMF for 'bailout' money which in essence would allow them to borrow yet more money at cheap interest rates. However, the EU members / IMF are demanding that, as a condition of 'bailout' loans, Greece reduce gov't employee pay rates and benefit costs, Greece reduce social welfare and retirement benefit payouts, Greece enact stiff new taxes etc. in order to provide some probability that Greece can eventually balance its expenditures versus tax revenues and actually make good on its gov't bond payments.
However, as a direct results of threatened pay cuts, benefit cuts, major tax increases etc., Greek gov't workers, union workers, and dissidents of all sorts are now 'taking to the streets' in protest.
In terms of fundamentals, what Greece / Portugal / Spain are to the European Union, California / New Jersey / New York are to the US Federal Gov't. And not surprisingly, California / New Jersey / New York are rapidly approaching the same point that Greece has already reached ... i.e. that downgraded credit rating will make it impossible for them to continue borrowing money, such that pay cuts, benefit cuts, major tax increases etc. will finally be forced upon them. California has already gone to the US Federal Gov't for a 'bailout', and was to told no. As such, be prepared to see Greek-like protests in the streets of California / New Jersey / New York very soon as economic reality finally forces these states to start cutting gov't employee pay rates, cutting social welfare benefit checks, and enacting major tax increases on 'average' citizens !!!
Of course, the argument is also being made that the Greek 'bailout's TRUE purpose is to cover the asses of rich European investors and banks who are on the hook for huge amounts of Greek gov't bond debt !
(snip)"Perhaps what I find more unsettling that the financial impact of certain policies and events, is what happens afterwards. What is the social impact of bad financial/social policies?
After all, I don't worry about the impact of good policies and good events since the impact is usually beneficial or at least not bad. However, it sunk in some years ago the following important observation:
ECONOMIC DISINTEGRATION LEADS TO SOCIAL DISINTEGRATION
When economies break down, you are left with people that have desperate needs. This was true in my former country Yugoslavia during the 1990s. It was true of the former Soviet Union during the late 1980s. It was true of almost every country throughout history.
As you watch Greece today, you see disintegration right before your eyes. In recent years, Greece's government kept spending the country into today's resulting chaos (think "Keynes"). The country may or may not be "bailed out" by the European Union. Of course, bailing out Greece means that other struggling countries will be forced to come up with the money to do so. What condition will those countries be in? After all, they are not in good shape today.
The next observation is also a very important one when we talk about heady topics like "economic collapse" and the resulting social disintegration:
THE #1 REASON WHY ECONOMIES COLLAPSE IS BECAUSE GOVERNMENTS
AND THEIR SPENDING (DEBT AND INFLATION) GREW OUT OF CONTROL.
That's right...excessive and growing government is the #1 reason why economies collapse. Throughout history, various groups of people petitioned the government for money and assistance because they think that there is some endless pot of goodies called "government money". Government does not have its own money...it only has what it can extract by force from others (taxes). In the case that it prints money, this is also not a "freebie". Printing money leads to inflation and inflation is nothing more than an insidious stealth tax than consumers ultimately pay. Runaway inflation also leads to a currency collapse.
Throughout my life, I have always strongly called for limiting government. Yes...the main reason is that I have seen over and over again, the dangers of growing or unlimited government. Whether you call it "socialism" or some other "-ism" like communism or totalitarianism, it is still in the general realm of "statism" and this is something that must...MUST...be limited. Not only for the good of society but also ironically for the good of government itself.
The "good-hearted" among us like to see the government be there in those cases when individuals need a helping hand and this is fine. The problem is when the situation grows out of control. At that point, no one gets any help. It becomes desperate as government itself becomes a casualty of its own excesses.
Is America next? If America continues on its current path, the answer is a sad yet resounding one...YES."(snip)



Reply With Quote

Bookmarks